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Three Flavours of Open Innovation: breaking down institutional boundaries through the X-Factor, Speed Dating, and iOT

Jeff Pappin on September 30, 2016

A great deal of activity has been happening under the topic of ‘open innovation’, however we have found very different initiatives launched by our clients that challenge a common definition of the term.

From this cross-client perspective we understand a broad set of practices and ambitions for open innovation, which we can begin to place in patterns of approach or flavours.

In all instances, open innovation blurs or breaks down institutional boundaries in order to interact with or just access greater pools of ‘talent liquidity’ to solve a problem. Additionally, the problem in question could be internal, within a corporate B2B relationship, or industry wide.

We have seen a good deal of exploratory work in ‘open innovation’ that has either been a brand enhancing marketing effort, on the one hand and exploiting pools of cheaply available capital (at the moment) that are feverishly searching for an asset to invest in. We can think of these as the X-Factor model and the Speed-Dating model. The former seeks ‘a winner’; the latter seeks ‘couples’.

The X-Factor Model is typically used within a single organization to encourage and foster contributing, creative behaviours. Though this is not within the definition of ‘open’ as it is typically the starting point of many innovation efforts within an organization, it is not surprising that initial external efforts use this model as well. Used externally, and hence ‘open’, is many times motivated to enhance and imbue brand identity with progressiveness, creativity and transparency. Shell360 is a globally recognized ‘open innovation’ effort in this vein with winners lauded in the mass media and often, deservedly so.

The Speed-Dating Model or Incubator, is currently being used by organizations who sponsor a forum for start-ups to compete in solving entrenched business / industry problems occurring in their services, products or approach. The organization sponsors the ‘problem liquidity’ (stuff that needs to be solved like ‘reduction of carbon footprint in supply chain’) and start-ups supply the ‘talent liquidity’ that hopefully covers greater subject matter expertise than the sponsoring organization could possibly create. The open innovation process here self-organizes the proper fit for start-up-to-problem-solution pairing. Financial services companies and FinTech start-ups provide the most high profile example.

The above two models provide a great deal of value to organizations. Specifically, they can exponentially enhance the ‘talent liquidity’ afforded to their current corporate boundary. This has had a growing influence on both HR and procurement by short-circuiting the entrenched process of each of these two respective functions.

Both functions have historically received requirements from ‘the business’ that, in turn, need to be implemented, rendering them a reactive internal function that struggles to prove their value-add to the enterprise. In many cases that value-add business case relies on some sort of cost savings: vendor A provided an x% discount after negotiations with Procurement, or Senior Developer B agreed to a salary x% under the salary band maximum. This type of functional justification may save a job or two for the time being, but will never make it strategically incisive for the business.

On the other hand, if these functions were to focus on curating business problems and issues rather than passively gathering internally focused requirements, the prospects may change. By sponsoring a medium that engages and fosters a broad ecosystem that is drawn to the variety of business issues presented can render these functions as true brokers of change. The term ‘broker’ is apt in that an ideation platform used as this medium is really the exchange between talent liquidity and problem liquidity. As any stock exchange is valued by the extent of its liquidity, these functions would then have a broader, more strategic business case than a typical cost centre.

Aside from x-Factor and Speed-Dating flavours, there is an IOT (internet of things) flavour. No, it does not seek ideas from things like the real IOT technology, but it uses the ideation process and tools as a remote sensor and improvement mechanism to provide process innovation. Instead of chipped toasters, the remote sensor is the human.

Enterprises that are primarily service providing companies, as opposed to patent-dependent product companies, have been increasingly providing employees, who have direct day to day understanding and relationships with customers, the means of posing service idea ‘challenges’ at the moment they occur. The ambition is to have a kind of dynamic best practices resource. Similar to an IOT refrigerator, which is able to sense and replace your souring milk carton lurking in the rear shelf, customer service issues will be able to ‘sense’ problems or even emerging sentiment of a corporate customer with JIT challenges, feedback and aggregated statistics from highly distributed service areas.

We have just peeked at three different flavours of open innovation. Assuredly, more flavours will follow, but of these three, some characteristics of successful implementations are emerging.

Firstly, moving away from a ‘lottery’ mind-set to a process discipline is needed. Pinning your hopes on x-Factor winners saving your company is a hit or miss event that makes for good television, but is really a risky, un-scalable, novelty in terms of sustained business direction. To harness creativity in a sustainable manner, a business needs to develop a disciplined process of cultivating talent liquidity and problem liquidity. In this manner, the hit or miss, winner / loser risk is mitigated by average and probabilities.

Secondly, this development of the exchange of talent and problem liquidity sets mentioned above will require a separate branding effort to attract the best ecosystem members for innovation. We have seen within our own clientele highly successful ‘inner brands’ for innovation, distinct from the parent, customer facing ‘outer brand’.

Thirdly, open innovation efforts need to shift focus from ‘what’ innovation can be conjured from an innovation program, to ‘who’ is in my ecosystem. The concentration on cultivating an enterprise ecosystem strategy will further remove the enterprise from the winner/loser risk problem: a good ecosystem will yield a decent crop of open innovation with some high yield years and some low yield years.

The various issues regarding ecosystem management within open innovation will be the topic of another blog.

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